Note (1)—Basis of presentation:

The condensed consolidated financial statements, including the notes thereto of FB Financial Corporation (the Company), formerly First South Bancorp, Inc. until the Company name was changed in 2016, have been prepared in accordance with United States generally accepted accounting principles (GAAP) interim reporting requirements, and therefore do not include all information and notes included in the annual consolidated financial statements in conformity with GAAP. These interim condensed consolidated financial statements and notes thereto should be read in conjunction with the Company’s audited consolidated financial statements and accompanying notes included on Form S-1. The Company’s principal business activity is banking, conducted through its wholly owned subsidiary, FirstBank (the Bank).

The unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the results for the interim periods. The results for interim periods are not necessarily indicative of results for a full year.

The accompanying consolidated financial statements have been prepared in conformity with GAAP and general banking industry. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and the reported results of operations for the periods then ended.

Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant changes in the near term relate to the determination of the allowance for loan losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, and the determination of the fair value of financial instruments, including investment securities, derivatives and mortgage servicing rights. In connection with the determination of the estimated fair value of foreclosed real estate and impaired loans, management obtains independent appraisals for significant properties.

Certain prior period amounts have been reclassified to conform to the current period presentation without any impact on the reported amounts of net income or shareholders’ equity.

On June 28, 2016, the Company declared a 100-for-1 stock split, increasing the number of issued and authorized shares from 171,800 to 17,180,000 and 250,000 to 25,000,000, respectively. Additional shares issued as a result of the stock split were distributed immediately upon issuance to the shareholder on that date. Share and per share amounts included in the consolidated financial statements and notes thereto reflect the effect of the split for all periods presented. Additionally, in July 2016, the Company increased the authorized shares from 25,000,000 to 75,000,000.

On August 19, 2016, the Company filed a Registration Statement on Form S-1 with the SEC. That Registration Statement was declared effective by the SEC on September 15, 2016. The Company sold and issued 6,764,704 shares of common stock at $19 per share pursuant to that Registration Statement. Total proceeds received by the Company, net of offering costs, were approximately $115,525. The proceeds were used to fund a $55,000 distribution to the majority shareholder and to repay all $10,075 aggregate principal amount of subordinated notes held by the majority shareholder, plus any accrued and unpaid interest thereon. The Company qualifies as an “emerging growth company” as defined by the Jumpstart Our Business Startups Act (JOBS Act).

The Company also terminated its S-Corporation status and became a taxable corporate entity (C Corporation) on September 16, 2016 in connection with its initial public offering. Pro forma amounts for income tax expense and basic and diluted earnings per share have been presented assuming the Company’s pro forma combined effective tax rate of 37.22% and 37.33% for the three and nine months ended September 30, 2016, respectively, and 30.9% and 34.35% for the three and nine months ended September 30, 2015, respectively, as if it had been a C Corporation during those periods. The difference in the statutory state and federal tax rates of 6.5% and 35% is due to nontaxable investment income in addition to the bargain purchase gain recognized in the third quarter of 2015 related to the acquisition of NWGB. In addition, the pro forma results for the three and nine months ended September 30, 2016 excludes the effect of recognition of the deferred tax liability attributable to conversion of $13,181 as discussed in Note 7.

Basic earnings per common share are net income divided by the weighted average number of common shares outstanding during the period. Diluted earnings per common share include the dilutive effect of additional potential common shares issuable under the restricted stock units granted but not yet vested and distributable. Unearned compensation plus assumed proceeds from the applicable tax benefits are used to repurchase common stock at the average market price.

The following is a summary of the basic and diluted earnings per common share calculation for each of the periods presented:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Basic earnings per share calculation:
Net income	$	1,207	$	15,905	$	31,581	$	38,665
Weighted-average basic shares outstanding		18,259,128		17,180,000		17,542,335		17,180,000
Basic earnings per share	$	0.07	$	0.93	$	1.80	$	2.25
Diluted earnings per share:
Net income	$	1,207	$	15,905	$	31,581	$	38,665
Weighted-average basic shares outstanding		18,259,128		17,180,000		17,542,335		17,180,000
Average diluted common shares outstanding		73,064		—		24,532		—
Weighted-average diluted shares outstanding		18,332,192		17,180,000		17,566,867		17,180,000
Diluted earnings per share	$	0.07	$	0.93	$	1.80	$	2.25
Pro forma earnings per share:
Pro forma net income	$	10,033	$	11,583	$	30,412	$	27,029
Weighted-average basic shares outstanding		18,259,128		17,180,000		17,542,335		17,180,000
Pro forma basic earnings per share	$	0.55	$	0.67	$	1.73	$	1.57
Pro forma diluted earnings per share:
Pro forma net income	$	10,033	$	11,583	$	30,412	$	27,029
Weighted-average diluted shares outstanding		18,332,192		17,180,000		17,566,867		17,180,000
Pro forma diluted earnings per share	$	0.55	$	0.67	$	1.73	$	1.57

Except as set forth below, the Company did not adopt any new accounting policies that were not disclosed in the Company’s 2015 audited financial statements included on Form S-1.

Stock-Based Compensation — Stock-based compensation expense is recognized in accordance with ASC 718-20 Compensation – Stock Compensation Awards Classified as Equity. Expense is recognized based on the fair value of the portion of stock-based payment awards that are ultimately expected to vest, reduced for estimated forfeitures based on grant-date fair value. The restricted stock unit awards are amortized over the required service period, if any.

Except as set forth below, there are currently no new accounting standards that have been issued that will have a significant impact on the Company’s financial position, results of operations or cash flows upon adoption that were not disclosed in the Company’s 2015 audited financial statements included on Form S-1.

In June 2016, the FASB issued ASU 2016-13-”Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The update amends guidance on reporting credit losses for assets held at amortized cost basis and available for sale securities. For assets held at amortized cost basis, this update eliminates the probable initial recognition threshold in current GAAP and instead, requires an entity to reflect its current estimate of all expected credit losses. For available for sale securities, credit losses should be measured in a manner similar to current GAAP, however Topic 326 will allow credit losses to be presented as an allowance rather than as a write-down. The provisions of this update are expected to become effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2019. Management is currently evaluating the potential impact of this update.